Entrepreneurs join the checkless economy

James Wahba charges all of his co-working tenants by credit card, after finding paper checks inconvenient.

James Wahba ditched the idea of accepting paper checks just one month after he started running his Manhattan co-working facility, Projective Space. Tracking down the checks from his on-the-go tenants was so difficult that he quickly transitioned to requiring all payments to be made by credit card.

"No one had a problem with it," said Mr. Wahba, CEO. "A lot of our members like paying by credit cards. Some can get points and rewards."

Checks, a mainstay of monetary exchange for centuries, are fading away with hardly any fanfare, as both consumers and young, tech-savvy entrepreneurs like Mr. Wahba opt for digital payments. The total number of checks from businesses and consumers that were paid declined by 9.2% per year from 2009 to 2012, and their value dipped by 6.3% annually in that period, according to the Federal Reserve Payments Survey released in December 2013.

Interactive

New York City businesses may be abandoning checks faster than those in other places. Many of the city's large number of freelancers, micro-businesses and co-working spaces like Mr. Wahba's take advantage of cloud-based invoicing software such as FreshBooks and Harvest.

They offer an increasing array of digital payment options, notes former Citigroup executive Jay Bhattacharya, CEO and co-founder of Zipmark, a Manhattan-based firm that lets companies accept payments from customers' checking accounts online. For instance, FreshBooks enables businesses to receive immediate credit-card payments for invoices through such gateways as Stripe and PayPal.

Meanwhile, more businesses now have the capability to easily pay other firms electronically by automated clearinghouse, or ACH, payments from their checking accounts, owing to services such as Zipmark. "We're seeing more banks start to think about offering a few more payment options for their small-business customers," Mr. Bhattacharya said.

Still, though checks made up only 15% of all noncash payments in 2012—down from 46% in 2003—businesses should consider their customers' preferences carefully before refusing to accept checks, say experts.

Chris Brundage, chief operating officer of Sage Payment Solutions EFT in Fort Walton Beach, Fla., suggests that businesses accept checks but convert them to ACH payments. "It's less expensive than a credit-card payment, and they can still have access to the payment in a couple of days," he said.

Businesses that want to get paid digitally should note the fees that come with this so they don't eat into profits, experts say. Credit-card fees range from 1.5% per transaction to more than 3%, according to the National Retail Federation. That means the fee for a $2,000 monthly rent payment could be anywhere from $30 to $60 or more.

No more rubber checks

In contrast, debiting a customer's bank account by ACH costs from 10 cents per payment (for high-volume merchants) to $3.50 (to process a check by a high-risk payer), according to ACHQ, an electronic-payment processing company based in Miami. Processing a paper check generally costs $2.75 to $4, Mr. Bhattacharya said.

Mr. Wahba said the credit-card fees are well worth it, given that automated payments save him time and help him avoid bounced checks.

Jeremy Harper, senior investment analyst at Entrepreneurs Roundtable Accelerator in Chelsea, also finds that accepting payments from tenants electronically makes sense. He uses Zipmark to invoice tenants, processing "less than $100,000" a month this way; payments get direct-deposited by ACH into the bank. Zipmark charges him 1% per transaction, up to a $5 maximum. Before Mr. Harper tried Zipmark, residents were "clamoring" for something more convenient than paper checks, he said. "It's much easier for tenants," he added.

Crain’s New York Business is the trusted voice of the New York business community—connecting businesses across the five boroughs by providing analysis and opinion on how to navigate New York’s complex business and political landscape.